Bookkeeping: Closing Buffalo Wild Wings (BWLD) and Buckle (BKE)

About 2-3 months ago the "consumer is back because gas fell $0.50" trade was hot and heavy among the hedge funds. I was shaking my head at the time, but watching opportunity after opportunity pass me by, as anything consumer related was flying up... remember, reality is not reality in the stock market... perception is reality. The perception was there was either no recession or the recession was so mild and everything will be fine; all the consumer needs is for gas to drop 50 cents and we'll be back to 2006 and everything will be honky dory. So, trying to generate any sort of return in a market that provides so little opportunities, we chased into this sector. I didn't believe in the thesis but the "market" was saying these were the places to be...

Now, I do believe this Christmas is going to be the worst in a long time, and unemployment is going to be getting worse over the coming 6-9 months. At some point people will jump back into these consumer stocks trying to out anticipate each other on a recovery. Maybe this is selling at the bottom or not, I don't know. I just think a prolonged consumer led recession should not lead to strength in consumer stocks, but after being correct on that thesis from summer 2007 to early summer 2008, these stocks became a hedge fund play thing to the long side, at least for a 6-8 week trade. Maybe they will become a play thing again in a few weeks or a few months, but I'm trying to find investments I can hold for an extended period of time, and my worries with anything consumer related, even best of breed, is guidance. Consumer discretionary is so putrid right now, even stalwart McDonalds (MCD) broke its 200 day moving average yesterday. That's been one of the few places to hide out in all this mess.

Buffalo Wild Wings (BWLD) is one of my favorite restaurants - they have continued to execute in this very tough environment. But I cannot now sit going into any earnings with a heavy position because it is very easy for any consumer related company to say "things are worsening, the consumer is pulling back, is worried about their job, credit is becoming a problem, etc". So I'm going to exit this position, and monitor it from afar...

Everything I said for BWLD above applies to retailer Buckle (BKE) - all they have done is continue to execute month after month, posting extraordinary same store sales. But they can at any moment say "we're seeing our first sign of weakness" and within minutes in this market you can be down 30%. Further they have had such high same store sales for so long that the bar is set very high. In this market it seems better to buy the hated stock than the company doing well - because if a company has -5% same store sales and "improves" to -2% people love the stock. But when a company has +20% same store sales and that weaknes to +19.75% people shriek and say there will be no one that ever shops at that store again and the stock loses 40% in a day. We've seen it in other sectors so the RISK is simply not consumerate with the REWARD. That does not mean the stock does not go up; it simply means every day you hold it there is risk. Again, perversely it is better to buy stocks where bad news has been suffocating the company because any sliver of hope will drive it up. Versus companies that have been executing in a bad market and people already have high expectations.

We started Buckle (BKE) on Aug 7th and take a $2500 loss by selling out the last 0.8% stake today in the mid $49s. We started Buffalo Wild Wings (BWLD) on August 11th and exit flattish (a few bucks up) by selling out the last 0.4% stake in the mid $36s.

Once more, I cannot make heads or tails right now of stocks - they do not trade on fundamentals anymore. They have not for many months - stocks are pushed up on an illogical "thesis" (the consumer is back when gas drops 50 cents) or sold off depending on what hedge fund is liquidating. This is not investing; it is gambling and guessing. Which means a blind folded monkey throwing darts at the stock page of the Wall Street Journal can do as well as I can right now. Until stocks do begin to trade on fundamentals or technicals, best to retrench on most positions - even if it means selling at a "bottom". If the market rebounds, we have other ways to partake in the rally that don't have the same issues in terms of potentially explosively bad guidance and/or already have been beaten to a pulp and hence expectations are dismal.

No position